Citigroup Upgrades Bank Hapoalim to Buy on Strong Q2 Performance

American investment giant Citigroup released its first analysis of Bank Hapoalim's second-quarter results, highlighting a significant rise in return on equity (ROE) to 15%, up from 13.4% in the previous quarter despite a special tax on bank profits. Citigroup described this as substantial progress driven by strong revenue growth and reaffirmed its "buy" recommendation with a target price of 88 shekels per share, representing a 16% premium over the current market price.

The bank reported a net profit of 2.49 billion shekels and an ROE of 15%, improving from 13% in Q1, mainly due to a sharp recovery in income. Citigroup noted that the special tax reduced ROE by approximately 1.3%-1.4% annually, meaning the "true" quarterly ROE was about 16.4%, exceeding the bank's medium-term targets. The report praised Bank Hapoalim as a high-quality institution performing well amid challenging macroeconomic and tax conditions.

Total income, excluding credit loss provisions, reached 6.6 billion shekels, a 20% increase from the previous quarter and 2% year-over-year. Most of this growth was attributed to the consumer price index contribution, offsetting declines from Bank of Israel interest rate cuts and moderate credit margin erosion. The bank's net interest margin rose to 2.7% from 2.49%, and fee income increased by 2.7% to 1.15 billion shekels. Operating expenses remained stable at 2 billion shekels, down 4.4% year-over-year, improving the efficiency ratio to 30.6% from 36.6% in Q1, marking the best operational expense level in several quarters.

Credit loss provisions were 298 million shekels, considered normal by analysts, with a slight increase in non-performing loans to 0.5%. Bank management reiterated its 2026 targets: net profit of 8.5-9.5 billion shekels, ROE of 13%-14%, credit portfolio growth of 8%-9%, and dividend payout of 50%-60% of profits. Citigroup expects the bank to surpass these goals in the coming year.

In conclusion, Citigroup emphasized that despite much of the growth being driven by inflation, Bank Hapoalim's results remain high quality, supported by double-digit loan growth, low cost-to-income ratio, strong asset quality, and solid capital position.